Ofgem keeps lid on energy price hikes

ENERGY watchdog Ofgem has brought New Year cheer for households by telling power producers they must keep a lid on their charges.

The organisation has told 14 electricity distributors - regional monopolies running the wires that carry electricity from the national grid into homes – to limit their charge increases to 1% for the year from April 2005 and by no more than the rate of inflation for the following four years.

Ofgem chief executive Alistair Buchanan said: 'It is now for companies to deliver on the significant investment which the price control allows so that customers can see even better levels of service.'

The charge ceiling should only add around 6p to the average customer’s bill per month.

Distributors had called for more flexibility to increase charges but backed down after negotiations with Ofgem.

They argued higher charges would enable them to increase capital spending on their ageing networks. If not, they warned, security of supply may be at risk and could lead to blackouts.

However, with electricity generators having already raised prices, which are feeding through to higher household bills, Ofgem believes distributors receive enough money to do their job.

Energy providers, including Scottish Power and British Gas, hiked their energy charges last year to reflect the high price of oil.

Under the new price controls, companies will be able to spend £5.7bn in strengthening and developing their networks. Ofcom said it wanted to see an improvement in the quality of services.

A spokeswoman said: 'There has to be a balance between the amount necessary for investment and how much consumers can bear in extra costs.

'They’ve already faced swingeing increases because of the spike in wholesale gas prices, which went up by nearly 20% for households last year. Electricity prices increased by almost 14%. Consumers are already paying £5.2bn extra for their fuel this winter.'